CapEx Drag Grows as Values Edge Up, Price-to-Value Tightens in 4Q 2025: Webinar Highlights

After a volatile post-COVID stretch defined by sharp cap-rate expansion and wide sector dispersion, core commercial real estate (CRE) is now operating in a more stable, income-led environment—though with a new twist: capital spending is increasingly shaping realized returns. That’s according to “Interpreting the Data: Current Valuation Trends and State of the CRE Market,” a webinar hosted by SitusAMC’s Real Estate Valuation Services (REVS) team on February 19. The panel walked through what’s driving performance—and what may matter most heading into 2026. 

Brian Velky, Global Head of REVS, Dane Anderson, Managing Director of Appraisal and Consulting, and Andrew Sabatini, Managing Director, Valuation Management, analyzed current valuation dynamics and 4Q 2025 sector performance across the NCREIF NFI-ODCE index. They covered key market shifts, drawing on transaction data, appraisal trends and net operating income (NOI) performance. Here are the highlights: 

1. Income Remains the Anchor, Accounting for ~90% of ODCE Returns over the Past Year 

A return-component build from 2018 onward reinforced a familiar theme: NOI yield is consistently the most stable contributor to ODCE total return, regardless of whether the total return line is positive or negative. Panelists noted that income has made up about 90% of total return over the past year, versus a longer-run expectation closer to 80%+ as conditions normalize. 

The takeaway: in a “lower beta” environment, in which cap-rate tailwinds are limited, income durability is doing the heavy lifting—and small shifts in other components can have outsized impact. 

2. NOI Growth has Cooled Materially, Dragged Down by Office  

Though NOI-growth has weakened over the last four years, panelists emphasized that this is not a broad-based deterioration. Outside of the office sector, NOI growth remains positive across sectors, and in some cases resilient. 

Importantly, the office NOI trend—while still negative recently—was described as showing early “green shoots.” SitusAMC expects office NOI to turn positive in 2026 as leasing stabilizes and the sector works through expirations and terminations that drove the downswing. 

3. Cap-Rate Expansion Has Largely Subsided 

The webinar reiterated that the cap-rate shock from mid-2022 through mid-2024 was the dominant driver of recent capital return volatility—but that influence has faded meaningfully over the past year. 

Cap-rate movement should remain modest in 2026 unless capital markets change materially. As one panelist summarized the cycle shift: a rising tide is less likely to lift all boats this time—making operational execution and asset-level fundamentals more central to returns. 

4. CapEx is Rising and Offsetting Otherwise Positive Value Change 

A major emphasis of the session was the return drag from CapEx. Owners are spending more—an average of roughly ~170 bps—which can be seen as a positive sign of owner confidence to reinvest in their properties and value stability. However “good” CapEx can still be a measurable headwind in a low-return environment where every basis point matters. The ODCE has posted six consecutive quarters of positive market value change, yet CapEx has predominantly offset those increases at the index level—muting capital return. 

5. Sector Returns Clustered Near 1%+ in 4Q 2025, with Industrial Trailing 

A 4Q sector snapshot showed most property types at or above ~1% unlevered total return, led by self-storage (near 2%) and followed by retail (~1.6%). 

One of the more counterintuitive observations: industrial was the weakest sector in 2025 and a laggard in the quarter, driven by lower income return relative to other sectors. Panelists cautioned against underestimating how much the income component drives rankings when capital appreciation is muted. 

6. Office is Becoming More Capital Intensive 

Office has historically been capital intensive—and that is increasing, the panel noted, framing this as both a reality check and an underwriting reminder.  

Even if office cap rates look materially higher than apartments (e.g., mid-6s vs. mid-4s), net cash returns can converge once CapEx is considered, and the heavier spend underscores both the cost of stabilization and the risk premium investors are pricing in. The expectation is that office CapEx demands may persist or increase as owners fund TI/LC packages to rebuild occupancy. 

7. Dispersion Has Collapsed, and Asset Selection and Execution Now the Differentiators 

A sector-dispersion chart showed the market moving from near all-time highs in sector dispersion over the past five years to near all-time lows over the past five quarters. 

The implication was clear: with sector-level performance more compressed, differentiation is increasingly driven by leasing execution, expense control and NOI creation—the “blocking and tackling” of asset management. Even so, the panel noted that sector tilts still matter at the margin: recent quarters have been tougher for industrial-heavy exposure relative to self-storage or retail-heavy mixes. 

8. Office Discount Rates Widened, Especially in CBDs 

The webinar spotlighted valuation trends for 100% of ODCE, including discount rates, terminal caps, going-in caps and other cash-flow metrics. For office specifically, occupancy declined from ~89% to ~82% over four years, but has shown recent stability, consistent with what REVS is seeing in client portfolios. 

Office discount rates widened nearly 200 bps, from roughly ~6% to just above ~8% over the same horizon. By subtype, the widest discount-rate movement was observed in urban/CBD, with medical office showing the least widening. The panel flagged life science as an area where the observed widening seemed less than expected, given leasing headwinds. 

9. Price-to-Value Alignment Tightened Sharply in 2025 

From a transaction validation lens, the panel compared transaction prices to prior-quarter appraised values and highlighted a striking headline: ~0% average variance for 2025 across ODCE—supported by nearly $15 billion of volume. Activity was concentrated in the second half and especially 3Q, including a notable regional mall sale in Dallas for approximately $2 billion. 

Office was noted as its standout shift: earlier in the year it traded at a discount to appraised value, but by year-end it moved to a premium, helped by higher 4Q office volume. 

The panel emphasized that transaction pricing and ODCE appraised values have shown the most consistent alignment since late 2022, and that apparent “jarring” discounts in certain quarters were largely explained by outlier office trades rather than a broad-based reset. 

Looking Ahead: Modest Cap-Rate Drift, NOI Growth As the Engine 

In closing, the REVS panel shared a forward framework comparing the current cycle (beginning mid-2022) with the Global Financial Crisis (GFC) recovery. The valuation team does not expect a dramatic, cap-rate-compression-driven rebound. Instead, the outlook calls for modestly higher cap rates over time as spreads normalize, partially offset by anticipated NOI growth across sectors—including a measured improvement in office as occupancies stabilize. 

As one practical example: investors may accept a low going-in cap (e.g., industrial) because they expect NOI growth through rollover to lift the stabilized yield over time—implying that embedded growth, not rate compression, is the mechanism for improved performance in this cycle. 

Watch a recording of the webinar here or download the slides here. For more information on SitusAMC’s Real Estate Valuation Services, visit our website.